1 – Defined Benefit Pensions
These are also known as Final Salary Pensions and are mainly funded by employers, although sometimes employees will pay into them too.
These pensions give you a guaranteed future income, in the form of a pension, based on a set formula. The formula will be based on things like how long you worked for the employer, what you were paid and what percentage of your salary you paid into it.
The employer and the pension trustees are responsible for ensuring there is enough money available for you to receive your guaranteed pension for the rest of your life.
This is a big responsibility for them and is often very expensive for employers, as such these types of pensions are becoming rare and most employers these days offer a Defined Contribution Pension instead.
2 – Defined Contribution Pensions
Most personal pensions will fall into this category, including workplace pension schemes, stakeholder pensions and self-invested personal pensions (SIPPS).
The difference between these types of pensions is the amount you or your employer contributes and how that money is invested.
These differ from Defined Benefit because there is no guarantee as to the future pension income you will receive.
When you have finished saving into your pension, you will need to choose what to do with it and your two main options are to purchase an annuity or take it as drawdown.
3 – State Pension
You build up your entitlement to the state pension by paying National Insurance contributions from your salary. The Government decides what the normal retirement age is and what weekly pension amount you will receive. This can change, and changes are usually announced in the Budget.
An annuity is effectively an insurance policy that you purchase using the money in your pension pot, to guarantee you a monthly income for the rest of your life.
The main benefit is security as the product will pay you a regular amount each month until you die. If you live longer than the insurance company predicts, they may end up paying you more than you paid in, but if you die earlier you may end up receiving a lot less in payments than you originally paid in.
Plus, if you do die early your annuity dies with you, usually meaning your inheritors get nothing.
You can choose some options such as having the payments linked to inflation, getting paid earlier due to health issues or paying a spouse’s income in the event of your death. Although once selected these options can’t be changed and they will influence the monthly amount you receive.
You need to research the market for the best rates and options for your circumstances before you purchase an annuity.
With Defined Contribution pensions you can usually take 25% of your pension pot as a tax free lump sum. This will of course have an impact on the remaining pot and the value of any future pension income.
With a Defined Benefit pension it all depends on the scheme rules. Some have certain features around the amount of tax free cash you can take and the age at which you can access any cash. Again, this will have an impact on the amount of monthly pension income you receive.
Being an Independent Adviser means we can offer advice on the full range of investment products, also known as ‘whole of market’. That means when we select a range of products for our clients, the only factor we consider is are they right for the client. Restricted Advisers can only look at a limited range of products or providers, so they are not taking all of the options into consideration.
As we are experts in the full range of pension types and investment products, we can ensure that any product you choose is suitable for you and your particular circumstances. We will look at your attitude to risk and ensure your portfolio is aligned meaning that any rise and fall in interest rates is at a level with which you are comfortable, be that cautious or adventurous.
You also have more protection if you purchase an investment product based on our advice. We are regulated by the FCA and we follow strict procedures to make sure our advice is suitable.
Yes there is a fee to pay and you would avoid a fee if you chose to buy investment products yourself, without advice but you may be more likely to buy a product that doesn’t fully meet your needs or is unsuitable if you don’t take advice first. You may also be restricting your options as some products can only be accessed through an Adviser.
Yes, you should always ensure that an Adviser you choose is registered with the FCA and you can check the Financial Services register on their website www.fca.org.uk
If a Financial Adviser has a Status of Authorised on the register, this means they are given permission to provide regulated products and services.
If you are looking for pensions, investments, retirement income products such as annuities or general financial planning, then searching for a specialist adviser means they will have higher levels of qualifications to be able to give advice and recommend these types of products.
A good place to start would be with trusted websites where you can read reviews and check the qualifications of the Adviser, such as http://www.unbiased.co.uk or www.vouchedfor.co.uk